Political & Economic week that was: from rock star to rehab

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The week ended with a downgrade from “rock star” to “rehab” from HSBC Bank economists.

The downgrade should be treated with only marginally more weight than the original “rock star” status. 

As noted by this newspaper when the bank’s economists first coined the phrase, it was only really apt a generation ago – and even then, only due to the rock-star like excesses of the time. Sir Robert Muldoon performed the economic equivalent of climbing onto a hotel balcony, proclaiming he was a golden god and diving into the swimming pool. 

HSBC’s latest note is a bit of hyperbole in the other direction, although the exaggeration is not as bad: there is no doubt there are a number of risks attached to the New Zealand economy but these are much the same as they were when the banks’ economists proclaimed rock star status. 

Those risks are exposure to China (like most of the rest of the developed world economies) and the high level of net external debt – debt overwhelming held by the private sector and much of it attached to mortgage lending. 

In the same report, HSBC ranks countries like Norway as a bigger risk than New Zealand, which sounds a stretch. 

The report is really more of political than economic importance: certainly Labour’s Grant Robertson was teasing the ministers about it in Parliament this week. However, it may not have much impact outside the Bowen Triangle. 

Of greater economic significance this week were signs both manufacturing and services are not taking part in any projected economic downturn. The performance of manufacturing index (PMI) showed the 36th month of expansion, while the performance of services index (PSI) is the strongest it has been since 2007.

Services are still, overwhelmingly, the largest part of the New Zealand economy, and are dominated by tourism. 

Manufacturing has thrived, largely through a major shift in resources and effort since the global financial crisis into less labour-intensive, higher-investment activity. 

Combined, the PSI and PMI figures imply GDP growth of about 3.5%, Bank of New Zealand economists noted in a report.

While that pace of growth is not likely, it is an indicator of an underlying strength in the New Zealand economy away from the more headline grabbing dairy sector. 

On the political front, the biggest headline was the retention of veteran Annette King as deputy leader of Labour, instead of the increasingly high-profile Auckland list MP Jacinda Ardern. Leader Andrew Little said he favoured keeping Mrs King on – she had earlier indicated she would only stay as deputy for a year – because to promote Ms Ardern would have led to constant speculation about the younger MP’s leadership ambitions. 

However, the decision also signalled Labour’s internal political deadlock. 

Of greater policy significance – maybe – was Environment Minister Nick Smith’s indication he still hopes to get some form of Resource Management Act reform bill introduced to Parliament before the end of the year. 

Dr Smith sounded quite upbeat about this when challenged on the floor of Parliament by ACT’s David Seymour on Wednesday – however, when spoken to by NBR shortly afterwards, he was, though still hopeful, more circumspect. 

Meaningful Resource Management Act reform – a key part of National’s election platform in 2014 – has been stymied by lack of support from the Maori Party and United Future’s Peter Dunne.

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